The City of Upland is allowing the law firm of Stradling Yocca Carlson & Roth to serve in the dual capacities of bond counsel and disclosure counsel with regard to a bond issuing arrangement that will transfer the responsibility for financing infrastructure at the Harvest At Upland project from the developer and current landowners to the future residents of that subdivision.
Stradling Yocca Carlson & Roth was the special counsel for the city which recommended the bond  issuance to facilitate the Harvest At Upland project, such that by its own legal advice to the city it is churning for itself further legal fees.
Curiously, the law firm of Stradling Yocca Carlson & Roth is not mentioned in any of the public documents considered by the city council before its vote Monday night relating to the issuance of $22 million in bonds that will defray the cost of building infrastructure at the Harvest project, which is being undertaken by the Lewis Operating Company. It was only after the June 27 meeting had concluded and the vote was already taken that it was revealed Stradling Yocca Carlson & Roth had a multiple capacity role in the matter. That revelation was not provided until media inquiries were made into whether the law firm would serve in the bond counsel and disclosure counsel roles.
Stradling Yocca Carlson & Roth had been retained  by city staff  to serve as special counsel on the matter at the recommendation of Marshall Linn of the firm Urban Futures. Linn is Upland’s financial advisor.
In addition to its role as special counsel on the formation of a community facilities district relating to the Harvest At Upland project, Straddling Yocca Carlson & Roth will serve as well in the capacity of bond counsel, extracting a fee calculated as a percentage of the bond issuance for doing so, and also in the role of disclosure counsel, for which it will also receive a fee calculated as a percentage of the bond.
Since the 1980s, there has been substantial criticism of law firms practicing in the field of municipal and governmental law for so called double-dipping and triple-dipping, which consists of serving as advisory legal counsel to a city or agency, making a recommendation with regard to the issuance of bonds and then reaping a profit by serving in a second or even third capacity as bond counsel and/or disclosre counsel. Bond counsel services entail drawing up the documents relating to the issuance of bonds. Disclosure counsel services pertain to informing those entities which will purchase the bonds or be called upon to debt service them of the risks and financial liabilities that the bonds represent.
There have been conflicting opinions provided by the California Attorney General’s Office over the years relating to the once-common practice of cities employing an attorney or a law firm in the capacity of a given city’s redevelopment agency attorney and allowing that attorney or law firm to also serve in the capacity of bond counsel or disclosure counsel for the issuance of redevelopment bonds. Some of those opinions indicated that such an arrangement, wherein the attorney or law firm stood to cash in as bond or disclosure counsel by providing a recommendation to issue the bonds as redevelopment attorney was an outright conflict, one that violated both criminal and civil law. Other opinions held that while the practice was perhaps unwise and unethical, it was not inherently illegal. The upshot of the bad publicity surrounding the practice that began in the 1980s and continued into the 1990s was that most cities which had tolerated the practice previously moved to a policy of not allowing a single attorney to serve in the dual or triple capacities of redevelopment attorney, bond counsel and disclosure counsel.
In 2011, the California Legislature passed two laws which closed out redevelopment agencies statewide. A partial justification for that legislation was to stem abuses of the redevelopment process, which included such double and triple dipping.
The matter voted upon by the Upland City Council this week involved the creation of a community facilities district to cover just that portion of the city in which the Harvest At Upland project is to be built – south of Foothill Boulevard, east of  Monte Vista Avenue and north of 11th Streets. Harvest At Upland will consist of 318 detached and attached, single-family residential units on 31 acres. While traditionally those undertaking the development of property – the landowners and the project applicant/developer – paid for the infrastructure needed to complete such a project, legislation sponsored by then-state senator Henry J. Mello and then-assemblyman Mike Roos and enacted by the California State Legislature in 1982 created the Community Facilities Act. Better know as a Mello-Roos arrangement, the act allows would-be developers to essentially transfer the cost of constructing infrastructure to support a project ultimately to the buyers of the homes that are created by that development.
In this way, Lewis Operating Company and the eighteen owners of the vacant property to be developed into Harvest At Upland coordinated with city staff, Linn/Urban Futures and Stradling Yocca Carlson & Roth to set up the creation of a community facilities district on the property in question. The community facilities district, which exists under the authority of the city, will issue $22 million in bonds, the proceeds from the sale of which will then be used for laying or constructing water pipes, sewers, storm drains, bridges, streets, dry utilities and landscaping on, around or between or as extensions to 11th Street, Dewey Way, Monte Vista Avenue, Foothill Boulevard and the San Antonio Creek Channel.
Instead of Lewis Operating Company or the current landowners absorbing the costs, paying the bondholders will be handled by the eventual purchasers of the homes within the Harvest At Upland subdivision. In addition to their mortgage payments and regular property taxes, the purchasers of the homes will be hit with a Mello-Roos tax, tacked onto their yearly property bill. Those with homes with square footage over 2,050 will pay $4,699 per year; those with homes of between 1,901 and 2,050 square feet will have a Mello-Roos bill of $4,540 per year at tax time; those with a residential property of 1,751 to 1,900 square feet will pay $4,381 per year; those with houses between 1,601 and 1,750 square feet will have their property tax bill increased by $4,222 per year and those with houses of 1,600 square feet or less will be soaked for $4,063 per year.
Those Mello-Roos taxes will stay in place for 40 years, until such time as the bondholders are paid back both their original investment and interest.
In addition to paying for the infrastructure, the bond proceeds will be used to pay for bond-related expenses, including an underwriters’ discount, reserve fund, capitalized interest, financial advisor fees and expenses, bond and disclosure counsel, special tax consultant fees and expenses, dissemination agent fees and all other incidental expenses; as well as administrative fees of the city and the bond trustee or fiscal agent related to the improvement areas of the district and the bonds; and reimbursement of costs related to the formation of the district advanced by the city or any related entity, or any landowner or developer within the district, as well as reimbursement of any costs advanced by the city or any related entity, or any landowner or developer within the district before the houses are built, and for facilities or other purposes or costs of the district.
City officials indicated they did not really know or care to know the intricacies of how the bond financing worked in general or that Stradling Yocca Carlson & Roth, upon whom they were relying for guidance with regard to the advisability of issuing the bonds, stood to make more money once the bonds were issued.
“It is a specific bond tax, whatever you want to call it, for this particular project,” said Mayor Ray Musser in describing the extent of his and the city council’s understanding of the district formation and its attendant arrangement. With regard to “very technical questions, specific questions,” Musser said, “We don’t have those answers up here. It’s impossible to do that.”
Bradley Robert Neal, the attorney with Stradling Yocca Carlson & Roth who was at the June 27 council meeting, told the Sentinel his firm would serve as both bond counsel and disclosure counsel for the bonds’ issuance. Asked if he saw a conflict in his firm advising the city to issue the bonds and then getting a piece of the action in the form of a percentage of the proceeds to do the technical documentation and disclosure work relating to issuing and selling the bonds, Neal said, “No, I don’t.”
Upland City Attorney Richard Adams said of the triple-dipping on Stradling Yocca Carlson & Roth’s behalf that he perceived “no” conflict. “I am comfortable with it,” he said. “With the size of this issuance, I’m sure they will be very careful.”